Germany: Ukraine conflict takes toll on Europe's largest economy

In two months' time, the conflict in Ukraine will enter its third year.

The strain of the prolonged fighting is having its effects on all involved, including economies worldwide. 

In many ways, Germany is feeling the impact more than others. Since the conflict began in February of 2022, experts claim that the cost on Europe's largest economy has been as much as $110 billion.

Marcel Fratzscher, president of the German Institute for Economic Research, says the bill has been extensive.

"In terms of economic activity, 2022 saw around one percentage point less in economic growth because of the war and this year in 2023 the Germany economy is shrinking by 0.3 percent," he said.

The three main reasons for this loss, he continues, are "the impact on energy costs, the lower exports for Germany and of course confidence: companies investing less, consumers consuming less because of very high inflation."

In support of Ukraine, Berlin rushed to divert their heavy dependence on cheap Russian oil and gas. Alternatives were more expensive, though, pushing up energy prices and inflation.

EU sanctions placed on Russia also cut German exports to the country, which had been among the 10 most important trading partners for Germany in 2021.

READ MORE

Israel steps up strikes over Christmas amid fears of war spreading

German police raid pro-Palestinian and far right properties

Sweden threatens to deport law-breaking immigrants

To protect the economy, says Fratzscher, Berlin provided subsidies in the region of €40 billion ($44.27bn) to improve consumer confidence and help soften the blow from lost trade and rising energy costs.

In the face of conflict in Europe, Berlin boosted defense spending by €100 billion ($110.68bn) to upgrade and modernize a historically underfunded army.

In addition, Germany has also become the second largest financial contributor to Ukraine's defenses, after the U.S., as Fratzscher points out.

"The German government has been giving money in the order of close to €10-12 billion ($11-13 bn) a year for direct financial aid, aid for weapons, and also the German government has spent a lot on Ukrainian refugees. That has seen a spending of close to €10 billion on living expenses, on housing, on language course, helping them to integrate."

Yet with no end to the conflict in sight, those numbers will likely have to increase, a point enshrined in the federal budget for 2024, with an additional $11.6 billion allocated to military assistance for Ukraine in the coming years.

Subscribe to Storyboard: A weekly newsletter bringing you the best of CGTN every Friday